While the positive effects a currency war produced in the 1930s [many disagree] are unlikely to reappear, there is a chance of large negative effects such as a simultaneous trade war or the breakdown of the international monetary system, so let’s hope a currency war can be avoided.

Philadelphia Federal Reserve Bank president Charles Plosser notes that currency wars would only hurt world trade and the economies that were involved.

The IMF noted in 2010 that currency wars “would represent a very serious risk to the global recovery”.

Trade Wars

It is widely accepted that currency wars can lead to trade wars. As Time notes:

A competitive devaluation game can turn into a trade war, whereby losing countries start slapping tariffs on imports and exports to punish countries deemed to be “manipulating” their currencies. Trade wars, of course, make stuff more expensive for everyone, and that’s just about the last thing global consumers – increasingly squeezed by rising unemployment and inflation – need.

Currency wars lead to trade wars, which often lead to hot wars. In 2009, Rickards participated in the Pentagon’s first-ever “financial” war games. While expressing confidence in America’s ability to defeat any other nation-state in battle, Rickards says the U.S. could get dragged into “asymmetric warfare,” if currency wars lead to rising inflation and global economic uncertainty.

Indeed, trade wars have been leading to hot wars for thousands of years. For example, the war between Rome and Carthage – leading to elephants in the mountains surrounding Rome – essentially started as a trade war.